The Tax-Alpha Engine: Direct Indexing & Loss Harvesting
The Tax-Exempt Exit: Charitable Remainder Trusts (CRUT)
How to sell a highly appreciated asset tax-free, create a lifetime income stream for yourself, and receive an income tax deduction today. The mechanics of the “Spigot Trust.”
Executive Summary
- The Capital Gains Lock-In: You bought Tesla stock or an apartment building for $100k decades ago. It’s now worth $5M. If you sell, you owe ~$1.5M in taxes (Fed + State + NIIT). You are “locked in” because selling destroys 30% of your wealth instantly.
- The Solution (CRUT): You transfer the $5M asset into a **Charitable Remainder Unitrust (CRUT)**. The Trust sells the asset.
👉 0% Tax: Because the trust is a charitable entity, it pays **$0 capital gains tax**.
👉 100% Reinvestment: The full $5M is reinvested in a diversified portfolio (Stocks, Bonds, REITs). - The Income Stream: The Trust pays you (the Grantor) a fixed percentage (e.g., 5% to 50%) of the trust’s value every year for the rest of your life. When you die, whatever is left goes to charity.
The “Spigot” Feature (NIMCRUT)
Control Timing: A standard CRUT forces you to take income every year (which is taxable). A **NIMCRUT (Net Income with Makeup CRUT)** acts like a spigot.
👉 Strategy: If you don’t need income now, the trust invests in non-dividend paying assets (Growth Stocks). The trust generates “0 Accounting Income,” so it pays you $0. The unpaid payout accumulates in a “Makeup Account.” Years later, you turn the spigot on (switch to dividend assets) and withdraw the massive accumulated sum when you retire.
Mechanic: The Triple Benefit
Simulation: Selling a $5M Zero-Basis Business (Age 60)
| Feature | CLAT (Charitable Lead) | CRUT (Charitable Remainder) |
|---|---|---|
| First Payout Goes To… | Charity | YOU (The Grantor) |
| Remainder Goes To… | Your Heirs (Tax-Free) | Charity |
| Primary Goal | Wealth Transfer to Kids | Retirement Income & Tax Deferral |
“A CRUT allows you to say to the IRS: ‘I will give this money to charity when I die, so let me sell it tax-free and live off the gross proceeds while I’m alive.’ It is the most effective way to turn a highly appreciated, non-income producing asset into a lifetime pension.”